Contracts: Never Settle for the Standard Agreement

Just because a standard agreement is standard, doesn't mean it's a good agreement, except for the side that drafted it. Never settle for the standard agreement (SA from here on in). An SA is designed to optimize the rights of the party that drafted it, not to protect your rights. With that in mind, read the contract and look for ways that you can get screwed over. Look for words like exclusive, recoupable, net, penalty, termination, integration. These words usually cluster in areas that promote the interests of the drafting party over yours.

I can tell your eyes are glazing over already. Legal stuff, that's what lawyers are for, you're thinking. Correct. Get a lawyer, a good lawyer, nay, a great lawyer, one that you can trust. However, no one is as interested or understand your business as well as you. If you're negotiating industry specific contracts, you should be able to identify problems areas as well or better than your lawyer. It's your world, you should be able the think through the ramifications of royalty clauses (or whatever) in a direct and visceral way.

Having said that, don't rely solely on your own judgment with legal stuff, you should just be a second pair of eyes to supplement your lawyer's.

I just spend the last hour breaking down a DVD distribution agreement for a friend of mine. He runs a small production company and he's looking for a distributor for his latest film, Ex-mas Eve. A few distribution companies have indicated interest in the film, and he's begun to receive their standard distribution agreements. Man, those things suck. As a small independent producer, my friend doesn't have much leverage for negotiation, so he's mostly stuck with what they give him. I still advised him to negotiate, because if you read my previous post, you never know what you'll get until you ask for it.

So remember, when someone hands you their standard agreement, that's when the the fun part begins.

Note: If you interested in this legal stuff, there's an excellent piece on Gamasutra that has three games industry pros analyzing a development contract for Call of Duty: Finest Hour. Very interesting, even if you're not a game geek.

Virtual Team Applications for Cheap

Read/WriteWeb has a good roundup of different online virtual team apps. You know, those programs that help people communicate, schedule, manage projects, etc.

Personally, I'm not a fan of virtual teams. I prefer to lock my teammates in one room for a few days and see what happens. Usually, deep bonding, or...cannibalism. I hate it when the second one happens, the OSHA paperwork for cannibalization is monumental.

The bonding, however, builds the core of any successful team. Once people have an emotional attachment to each other and share a vision, they will perform amazing feats to make sure the group succeeds. I think deep bonding is much harder to achieve with someone you only speak with over Skype.

Having said that, I think the apps in the Read/WriteWeb roundup can be useful even if your team shares an office. Especially, Basecamp, which an excellent lightweight project management app. Unless, you really love Microsoft Project.

The bottom line: When you're putting together a small company, Subscription-based web apps are your best friends. Not necessarily because they're cheap, but because you don't have to commit large amounts of capital upfront. No capital upfront allows you to both more efficiently allocate your resources, and greater flexibility. For the same reason, you should lease your servers, rather than buy them. But that's an aside. Take it from a former IT manager, if you can avoid pouring money into enterprise apps that run internally, then do it.

Oops! Gotta run, my team has been locked in the conference room for three days, and things just got really quiet, that's usually when the problems start.

Porn on the Wii

I just came across an article on Kotaku (via Slashdot) about a Christian group organizing a smear campaign against the Wii. Except, I read the press release from a group called The Porn Talk (available in the Kotaku article) and I would not call it a smear campaign. In fact, I really think the group is just trying to be informative. I bet most parents, let alone people in general, don't know that you can access the internet (and its wealth of porn) via the Wii or the DS.

Yep, that's right, you CAN access the Internet via the Wii. See, you didn't know either.

CEO Playbook: If You Want Something, Ask for It

Sometimes, I think the greatest advice I ever heard was, "Never get involved in a land war in Asia", but then I realize no, it's actually this advice: "It never hurts to ask." Sure, it may hurt your pride, but if you have that kinda of pride that then you have deeper issues you better get worked out.

I've made it a habit over the last couple years, that whenever someone, usually salespeople, tell me they don't have any more tickets, Wiis, or monkey brains; I will then ask them if there is any other way I can see the show, find a Wii, or gnaw on delicious monkey brain. Turns out, there usual is.

People like to help other people. By asking someone for help, that person become involved in your problem. They want to find a solution for you. And since they are often the gatekeeper between you and the thing you want, their help is necessary. Sometimes, in fact, they bend the rules, just to help you get what you want. Why? Just because you asked. Crazy, eh?

Anyway, here's the context of this post. John and I wanted to get into the Game Developer's Conference 2007 because Tenuki is, on one level, a games company. The cost of a pass to the meatiest parts of the conference is $1675, if you bought ahead of time. We didn't. So we were looking at paying $1850 each to attend the conference. That's a lot of money for an early-stage startup.

So naturally, I started asking people how I could get into the conference for free. Okay, the truth is that I went around begging for passes, but someone on a mailing list advised me to check out the GDC Conference Associates (volunteer) program. The program stopped taking applications in January, but I figured I'd email the manager of the program and see if they had any last minute dropouts that needed to be replaced. They did, but I guess you figured that or I wouldn't be telling this story.

Now, I'm going to the GDC for free, well actually in exchange for 20 hours of volunteer labor, but the point is, had I not asked, I would be not be attending the biggest games industry conference of the year. And now, I am.

So there you have it folks, the power of asking for what you want.

Now, I'm going to ask all of you a favor, tell anyone you know who might be interested in startups, games, techie garbage, or humorous stories about my night with Britney Spears (a razor was involved) to check out my blog. Then force them to subscribe by offering food, coffee, or monkey brains. That's what usually works for me.

Take-away Notes from the CommunityNext Founder's Panel

Since I didn't actually attend CommunityNext, I'm beholden to Guy Kawasaki for posting a clip of the hour-long panel on his blog. And yes, I realize that CommunityNext happened about three weeks ago, so this isn't news by any shot, but rather a service for someone who doesn't want to sit through the hour-long video.

Anyway, here's the upshot. The panel featured Akash Garg of hi5, Sean Suhl of Suicide Girls, James Hong of HotorNot, Markus Frind of PlentyofFish, Drew Curtis of Fark, and Max Levchin of Slide. Basically, they gave some general info and advice about starting a social-based website.

The key takeaway: no one started their sites with the intention of making money (except Max). PlentyofFish was an attempt to learn .Net. Fark started with a picture of a squirrel with giant balls, simply because Drew Curtis thought it was funny. SuicideGirls was started as a proof-of-concept for a social sports network. HotOrNot, to amuse friends in cubes. Hi5, to meet chicks.

The second takeaway: only PlentyofFish does any marketing. However, Max Levchin had a very astute insight about the changing nature of viral marketing, which I will paraphrase here.
Viral marketing started with people sending links via email to their friends. Then, that was replaced by telling people about things via IM. Now, people use the Myspace to embed widgets from other cool sites into their pages. Max asks, what's next? He thinks that's where the next huge company will emerge from and I think he's correct. If anyone has any thoughts, please leave them in the comments section.

Takeaway 3 (courtesy of Guy Kawasaki): Five of the six companies believe marketing is a waste of money, and yet their revenue model is based on advertising. Beautiful.

You can find other highlights from the conference on Alan Graham's blog.

Sunday Morning Reading: Geeking out on Computer Games

If you read this blog, then you know I'm a game geek, especially RPGs (or role-playing games, for all you non-geeks out there). Especially PC games from the late 80s/early 90s.

Anyway, Matt Barton has a good article on the golden age of RPGs, including Wizardy, Ultima, Bard's Tale, Might and Magic, Pools of Radiance, and Wasteland. The article is like a survey class from college, a lot of things are mentioned, but nothing is explored in depth. But it doesn't matter, because if you're like me, merely the memory of the green and black maze that is Wizardry is more than enough pleasure. (And yet, I could only find a black and white gif. I just realized, I used to play Wizardry on a monochrome monitor.)

Bum Rush the Charts: Brilliant Marketing Ploy?

Bum Rush the Charts is a web-roots movement to get an indie band to the top of the Itunes chart. The idea is that everyone following the campaign goes and buys the same song from Itunes on March. 22, thus pushing it to the top of the Itunes chart.

Why? To strike fear into the hearts of the RIAA. Which is pretty ridiculous. How getting an indie band to the top of the Itunes charts screws the RIAA is beyond me. The Bumrush kids mention the usual stuff about the using power of social media, etc, but don't really explain how an indie band in the charts affects the RIAA in any meaningful way. Besides, an unsigned band, Koopa , already broke into the UK charts in January, so it's not like this is even a first for the music industry.

*sigh* Perhaps, I'm a bit cynical, but it strikes me as a sneaky way to use the distaste for the RIAA to get your band some fame. Now, personally, I think using the distaste for the RIAA to get attention for your band is a brilliant marketing strategy. However, I don't like wrapping a purely commercial motive in a box of moral outrage tied off with a pretty grassroots movement bow. It's even too cynical for me.

If you're mad at the record companies, write a song slagging them off, call it EMI, oh wait, the Sex Pistols did that already, and they were pretty blatant about being in it for the cash. It didn't hurt them a bit. Or check out boycott-riaa.com, they appear to be an actual grassroots movement trying to educate people about their cause.

Dealing with Startup Stress: How To Sleep at Night

Founding a startup is quick way to develop insomnia. You often lie in bed at night obsessing over the things you didn't accomplish. I beat myself up for not getting more accomplished in a day. When you running a startup it feels like there's a million things to do and none of them get done. You feel like Sisyphus most of the time, pushing a rock up the hill only to have it roll back down.

A good friend of mine gave me this advice, "You only need two small victories a day. "

I'm sure he stole it from somewhere, but nonetheless, I think it's good advice. So whenever I start freaking out, I get out of bed. I get my notebook. And I write down the two small victories I had that day. It lets me realize that I did get something done that day and I can relax until tomorrow.

After that, I can usually fall asleep pretty easily, even though I know that rock is waiting for me at the bottom of that hill.

Zivity and Tivo: The Importance of an Advisory Board Redux

I had my best President's Day ever!

Yes, shocking I know, since President's Day is fabled for its awesomeness as a holiday so how could any one President's Day be better than another? Well, allow me to tell you.

I met up with one of the co-founders of Zivity for some french toast and to chat about business-y things. Take any opportunity you have to talk to smart people about what they do, especially when it's founding a startup. Zivity was founded a few months before Tenuki, so talking to Zivity's co-founder is like looking through a little window into my future. She had all kinds of advice for me, but at the top of the list was the importance of a good advisory board. Especially, in the early months.

Zivity has managed to assemble a top-notch advisory board through a domino effect. They got a couple of good advisors and those advisors recommended other good advisors. Zivity is smart: they have gotten advisors that cover the different aspects of their business, rather than focusing exclusively on technical advisors, which is a problem, I suspect, in many other startups.

So that was an excellent way to start my morning: tea, toast, and transfer o' knowledge. Then I stopped into a nearby thrift store that having a 50% off sale. I wandered past a stack of old VCRs and lo and behold, on the top of the stack was a Tivo! For 10 dollars! Five bucks on sale!

And it works, and it has a lifetime subscription!

Ah, sweet, sweet President's Day.

Founders at Work: Ann Winblad

On a recommendation from Paul Graham, I picked up Jessica Livingston's Founders at Work: Stories of Startups Early Days. It's 400+ plus pages of interviews with around 30 startup founders. I'm a little over halfway through, but I'm ready to give the book must-read status for any aspiring founder.

Okay, but that's just context, because I really want to talk about my new crush on Ann Winblad.

I had heard of Ann Winblad, but honestly, I had no idea what she had accomplished. Kinda like, John Doerr, I mean I know he's a demigod, but I have no idea how he got to be one, probably through Burning Crusade.

Anyway...Ann Winblad, in her early twenties started a software company back in 1975 in Minnesota. I can tell you're not impressed. Sure, everyone and their bisexual roommate is starting a software company nowadays, especially in San Francisco, but not thirty years ago in Minnesota. People still don't start software companies in Minnesota. Basically, doing what Ann did back then was as unthinkable as Copernicus saying the world was round - it makes sense now but back then it was laughable.

Now, it's so easy for us to start software companies and have people give us millions of dollars to see our dreams come to fruition. It's kinda ridiculous that people would trust young, inexperienced geeks to build the industries of the future, and yet that's the world we live in. Don't take it for granted, it's a really unique moment in history. Who knows how long it'll last.

Somehow, I've gotten away from the original point of this post: to give you some highlights from Ann's interview. I'll save that for another day.

Track the Release of New Games via GigaGamez

For what John and I are doing, it helps to keep abreast of game industry trends. Generally, I rely on Gamasutra and GameDaily Biz News to keep me up-to-date. Often times, I find the amount of information that provide me to be a little much.

So I really appreciate GigaGamez summarizing the new game releases coming out for the quarter in one or two digestible articles. At the moment they don't appear to be covering new casual game releases, which is fine, because there is at least one casual game a day being released, and since they are mostly clones of existing titles, I don't think it's important to track.

When it comes to casual games, it is more informative to track the best sellers, and game-sales-charts.com does an amazing job at that.

Anyway, props to Jason McMaster over at GigaGamez and James C. Smith over at game-sales-charts.com for consolidating this info for lazy bastards like me.

Interning with Giants

Not me, of course. I never interned anywhere. But one of those annoyingly smart and ambitious kids that colleges produce nowadays did. Here's his mildly interesting comparison of the experience of working as an intern at Microsoft, Google, and Yahoo.

Mea Culpa: I love EA

I'll admit it. I'm a bit obnoxious when it comes to industry giants, like Microsoft, Oracle, EA, or even Google. They're easy targets. Not because they make mistakes, but because everyone knows about their mistakes.

That's important, because when you're being funny you have to rely on the audience to ALREADY know the subject that you're mocking. That's why comedians make fun of Oprah, because you don't need to explain to people who Oprah is. Anytime you have to explain the joke, it ain't gonna be funny.

It's easy to forget that these giant companies started just like Tenuki, just a couple of over-caffeinated geeks with a big idea. I was just reminded of this fact, by an article on Gamasutra about the history of EA.

In the past, I made fun of EA, mainly because I think their current crop of games are pretty cookie-cutter, Sims excepted. But dear God, look back at all the amazing stuff they've put out, especially in the early years: Archon, Bard's Tale, Wasteland(my favorite RPG of all time). Trip Hawkins, the founder of EA, had an amazing eye for talent. Nowadays, EA is like a Hollywood studio pumping out big-budget franchises with an eye for reducing risk, and maximizing profits. I can't blame them, the Madden Football franchise easily has netted them over a billion dollars.

So maybe, there's just a hint of jealousy when I mock the big boys. Well, okay, probably a lot of jealousy. I wish our company had a billion dollar cash reserve like Google. Instead, we have a few thousand bucks and a Wii (yep, John scored one). But give us a few years to claw our way to the top of the heap, then all you funny guys out there in the blogosphere can mock us. I promise I won't take it personally.

How Companies Really Get Founded: The Birth of Tenuki

John and I officially founded Tenuki on Dec.1 but I never thought to mention it until today. It's a bit anti-climatic, founding day. The real story is how we got there.

John and I had thrown around the idea of starting a company since hanging out together at a friend's wedding in Mexico. I was at the end of a yearlong trip around the world, so I had about 100 bucks to my name. I was too cheap to get a hotel room at the five-star resort the wedding was at, so John let me sleep on the couch in his room. We really haven't spoken since high school so it was a really nice thing for him to do for me.

We pretty much spent the whole weekend talking about tech stuff, predictions, what sucked, what rocked. And music. And girls. We bonded. By the end, of the weekend, I was positive that I wanted to start a company with him.

At the time, he was happy with engineering gig at a games company, and I was flat broke, so nothing really happened. I went back to DC, and eventually got a job as an IT manager at a startup. About a year later, I had saved about 40 grand and was pounding my brain for a good idea for a company. It was October and I had already told my boss that I was going to leave on Nov. 1 to go start my own company. Then, out of the blue, John calls, we hadn't spoken in a year, and tells me that he's ready to start a company.

Things really do happen like that.

It took about a month to extricate myself from my job. I ended up doing contract work for my old company until the end of November. I flew out to San Francisco the last day of November and we founded the company the next day, December 1.

UPDATE: David Beisel from Masthead Ventures just posted about how he uses the founding story to evaluate entrepreneurs. So for all you curious VCs out there, I'd be happy to provide the sexy details I left out, like the big idea behind Tenuki, for instance. But only if you buy the coffee.

Real Networks Earning Report - 86 Million from Shareware

Real Networks just announced their fourth quarter earnings. Gamasutra was kind enough to highlight Real's revenue from downloadable game sales:

The company's downloadable gaming revenue also saw strong growth, with $23.9 million for the quarter, up 53 percent over last year, and posting $86.2 million in total game revenue for the year.

Eighty-six million from downloadable game sales. Pretty impressive, if you recall that downloadable games used to be called shareware. Ten years ago, people would have called you crazy if you told them that you'd be making 80,000 dollars from selling shareware, let alone 80 million.

(via Gigagamez)

The DEMO Conference: Calculating the ROI

Right now, somewhere in the desert a bunch of startups paid 18,000 bucks apiece to demo their products to seven hundred people. We’ll assume INFLUENTIAL PEOPLE, like Michael Arrington, Om Malik, and Matt Marshall. If you break that down into the standard measurement of the internet, CPM, and calculate the ROI, well kids, you’re paying $22,500 per thousand impressions. By contrast, Myspace gets a CPM of 2.5 cents.

Let’s assume, that not everyone is a journalist. Perhaps only a hundred attendees are journalists. If each reaches an audience of 10,000 people then you get 1 million impressions for 18,000. That’s a CPM of $18. That’s pretty good. And cheaper than an ad in the Wall Street Journal.

Let’s just hope they like your product.

Waiting for the Demo/Advice From Paul Graham on Presenting Demo

It’s difficult being the non-technical founder. I don’t program so as far as the demo is concerned, all I can do is sit and wait. It’s agony.

But in preparation to present the demo, I found this very helpful nugget from the patron saint of startup founders, Paul Graham:

“A demo explains what you've made more effectively than any verbal description. The only thing worth talking about first is the problem you're trying to solve and why it's important. But don't spend more than a tenth of your time on that. Then demo.

When you demo, don't run through a catalog of features. Instead start with the problem you're solving, and then show how your product solves it. Show features in an order driven by some kind of purpose, rather than the order in which they happen to appear on the screen.

If you're demoing something web-based, assume that the network connection will mysteriously die 30 seconds into your presentation, and come prepared with a copy of the server software running on your laptop.”

Gaydar: Why You Can't Trust the Japanese Market

I overheard a pitch in Starbucks that was basically a location-based profile/meeting service. And I thought does anyone remember Gaydar? A company that sold beepers that activated whenever another beeper was within forty feet. Obviously, they were marketed to gay men. It failed.

The interesting thing to me is that Gaydar was very successful in Japan, except it was marketed to straight people. Over 100,000 units were sold.

The reason I find this interesting is because a lot of the next-gen mobile apps show up in Japan first. Japan is way ahead of the USA in terms of mobile usage. I suspect a lot of people look to Japan for business ideas that can be adopted for the US market. I mean, if it worked in Japan, then surely it'll work everywhere, right?

Except it doesn't. Japanese culture is REALLY different than American culture. In Japan, you can get your nails manicured by a vending machine. Japan has a popular movie series called Rapeman, it's about a hero who rapes women who have spurned the advances of lonely salarymen. It was shown at the local cineplex.

Japanese have strict social customs. Every interaction is highly ritualized. I suspect the rising mobile culture allows the Japanese to circumvent those customs and that's a big reason for the popularity of social mobile apps. In the US, social interactions are not restricted. I want to talk to a girl in a coffeeshop, I say hello. No one thinks I'm crazy, unless I happen to be homeless.

My point is this: be careful when you look to Japan for the validation of a market, other companies have been burned, it might happen to you, too.

The VC Perspective: What’s Important to VCs When You’re Preparing Your Pitch

1. Demo - Crucial. We only believe what we can see.

2. Pitch - Crucial. It better excite us so much that we forget there's a Blackberry buzzing in our pants.

3. Executive Summary - Very Important. We need this to remind us how excited we got during the pitch.

4. Business Plan - Kinda Important. We probably won't read it if we liked the pitch and demo, but our junior associates will check it for accuracy so you better do it well.

5. Financial Forecast - Not Important. Yeah, we all know it's bulls**t, so don't waste your time on it. But you better project 50 million in revenue by Year 4 or we won't consider you a large enough opportunity to invest in, sorry.